Greed is good, as the famous Gordon Gecko quote goes. And for while, back in the roaring 80s, it was. But today, you’re certain of applause if you decry greed among bankers, financiers, the so-called 1%, maybe even politicians. Greed is suspected as the root of all evil, certainly as the root cause of the recent and to some extent ongoing financial crisis or crises. In popular opinion, and consequently in politics, such swings of the pendulum happen all the time. It was that way when the Roaring 1920s gave way to the 1930s, and similarly to today, greed was easily named as the main culprit by many observers.
Calvin Coolidge, having removed himself by choice from the helm of the ship of state, was out of office by then. He mused about the causes of the Great Depression:
“We may say that it was the result of greed and selfishness. But what body is to be specifically charged with that? Were the wage earners too greedy in getting all they could for their work? Were the managers of enterprise, big or little, too greedy in trying to operate at a profit? Were the farmers too greedy in their efforts to make more money by tilling more land and enlarging their production? The most we can say is that there has been a general lack of judgment so widespread as to involve practically the whole country.”
I think Coolidge has a point here. The central question seems to be that those who decry greed disregard the acquisitive side of human nature. Worse, by pointing the finger at “the greedy,” they assume the role of arbiter of what is right and proper for human beings to aspire to. And here is the root cause of the progressive impetus – telling other people what is right, how things ought to be done, what is fair and equitable, how wealth ought to be distributed, how much money constitutes a fair income. By instinct and by experience, Coolidge recoiled from such social engineering.
I hope everyone has already checked out the refurbished and spiffy website of the Calvin Coolidge Memorial Foundation… there is always something new to discover there! And for those who rightly feel that the contents of this blog have been a little shallow lately (or ever), they are much encouraged to read and ponder two new footnote-laden essays by Bob Kirby and Jerry Wallace on two areas that are contentious – the alleged culpability of the Coolidge administration in causing, not preventing, or laying the groundwork for (you take your pick) the Great Depression (Kirby), and the question of how the Coolidge administration reacted to the activities of the Ku Klux Klan (Wallace). Not to spoil the fun for you, but I’d say our man comes out looking pretty good after all the evidence has been presented – as if there was ever any doubt about that!
And (in the hope that Jerry won’t mind), I’ll add an anecdote from the footnotes that was new to me – Jerry Wallace, who calls this one of his favorite stories and I must agree, includes it to illustrate Calvin Coolidge’s good relations with the Jewish community. The story is told by Representative Sol Bloom, a good friend of the president’s:
“With my wife and daughter, I once had the pleasure of taking David Belasco to the White House to meet the President. The great producer, then past seventy, was as shy and nervous as a schoolboy, and when I presented him he almost whispered as he said, “Mr. President, I am deeply honored…” “No, Mr. Belasco,” interrupted Calvin Coolidge. “I am deeply honored. There have been many Presidents of the United States, but there is only one David Belasco.”
With several partisan plans for budget austerity on the table, and with the budget situation shaping up as one of the main issues in the upcoming presidential campaign, the anti-austerity faction has been busy hauling the tar barrel out of the garage and trying to tar the GOP in particular with the image and memory of Herbert Hoover – you know, that laissez-faire guy who sat on his hands in the White House while the country slid ever more deeply into the recession.
Never mind that this is a caricature of Hoover that gets everything wrong. Robert Murphy, in an incisive post over at the Ludwig von Mises Institute, neatly uses the liberal pundits’ own words to discredit the point they are trying to make. It really is one of the more irksome yet persistent myths of American history that Hoover was a free-market ideologue who sat out the onset of the Great Depression – in fact, he was the most interventionist chief executive outside of war up to that time, and FDR merely extended and expanded Hoover’s interventionist agenda.
Coolidge and Harding are the two presidents whose policies provide a sharp contrast to those of both Hoover and FDR. It is a matter of conjecture what Calvin Coolidge would have done differently, had he been in office when the depression set in. If his life story, his philosophy, and his actions as chief executive are any guide, it is reasonable to assume that he would have stayed pat and attempted to steer the country through a brief albeit severe recession as Harding had done in 1920/21. There really is no way of knowing whether this would have worked better than the Hoover/FDR policies, other than the undisputable fact that these latter policies demonstrably did not work and the country was not lifted out of the depression until WWII.
Finally: remember that Coolidge had no great love for Hoover and famously remarked that “that man has given me nothing but unsolicited advice, all of it bad.”
On January 28, 1929 – just a few weeks before leaving the White House – Calvin Coolidge spoke at the 16th and, as it turned out, last meeting of the Business Organization of the Government. Looking back on 8 years of reining in a government structure “permeated with extravagance”, the president listed the stunning accomplishments, chief among them the unprecedented reduction in the national debt and the concurrent tax reductions. Beyond mere statistics, the speech clearly shows that this project was Coolidge’s major opus, the cornerstone of what he wanted to accomplish in office and what he intended to leave as his legacy. Yes, it must have rankled sometimes to be accused by some of “considering nothing but the material side of life” or charged with “advocating a penurious and cheeseparing policy.” But ultimately, having inserted “a golden page in our history,” this least war-like of presidents was justified in stating that “peace hath its victories no less than war.”
Characteristically, Coolidge cautions near the end of his speech that “the margin between prosperity and depression is very small,” urging continued vigilance against extravagance and waste. Not very much later, that depression really was at hand, and Coolidge’s successors chose to follow policies much different from his. Today, economists and historians debate whether their frantic actions, resulting in a huge expansion of government rather than “constructive economy”, prolonged and worsened rather than shortened the Great Depression. Be that as it may, Coolidge himself later stated that he felt out of touch with these new policies. It is poignant to me to note how proud he must have felt at the time of giving this speech, and how devastating it must have been later, when this proudest of his achievements was dragged down by the Great Depression and indeed his own policies were blamed as causes of the economic downturn.
Treasury Secretary Andrew Mellon in 1926, image courtesy Library of Congress
As members of the G20 prepare to meet in Pittsburgh later this month, it is unlikely that any of them will pause and reflect upon the legacy of Pittsburgh native Andrew Mellon who, following a distinguished banking and investment career, served as Secretary of the Treasury for most of the 1920s, under three successive Republican presidents (or, as some would have it, had three U.S. presidents serve under him). But maybe they should, for at least two reasons.
One, Mellon’s lasting achievement is the reduction of massive federal debt following World War I. He succeeded in doing so not by following the policies of the earlier Wilson and later FDR and successive administrations by raising existing taxes and inventing new ones, but rather by cutting tax rates, reasoning that “the history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business.” As finance ministers ponder how to reduce sky-high debt following intervention in financial markets, they are widely expected to follow the opposite path of raising taxes.
Two, Mellon was widely vilified after the onset of the Great Depression when he voiced his theory that the recovery of the banking system was contingent upon a process of weeding out and liquidating the weak banks. He also opposed deficit spending, instead advocating spending cuts to keep the federal in balance. At the outset of the current crisis, a small number of economists warned of the dangers of keeping “too big to fail” banks afloat, but to no avail.
Times have changed since the 1920s, and for better or worse, there likely is no going back to the largely limited-government views held by Mellon and Coolidge. We will never know how the Great Depression would have played out if Mellon’s policies had been carried out. We do know that his record for much of his tenure as Treasury Secretary was outstanding and his instincts, honed by a lifetime in business, were keen. It may well be that his policy prescriptions have some value for our time as well; maybe someone should leave copies of his book Taxation: The People’s Business on the desks of G20 participants.